Mortgage Refinance Calculator (2024)

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Mortgage refinancing is when a homeowner takes out another loan to pay off—and replace—their original mortgage. A mortgage refinance calculator can help borrowers estimate their new monthly mortgage payments, the total costs of refinancing and how long it will take to recoup those costs.

What Is Mortgage Refinancing?

Mortgage refinancing is when you replace one home loan with another in order to access a lower interest rate, adjust the loan term or consolidate debt. Refinancing requires homeowners to complete a new loan application and may involve an appraisal and inspection of the home. Lenders also rely heavily on an applicant’s credit score and debt-to-income ratiowhen deciding whether to extend a new loan.

In addition to the qualification process, refinancing costs can be substantial, totaling up to 6% of the original loan’s outstanding principal. So it’s important to consider whether a refi is the right move for you.

How Does Refinancing a Mortgage Work?

When you refinance your existing mortgage loan, you receive a new loan with new terms—such as a lower interest rate or new maturity date. This new loan replaces your original mortgage.

If you’re doing a cash-out refinance, you’ll take out a new loan with an amount larger than your current mortgage balance. The new loan pays off your old loan, and you receive the difference in cash. Cash-out refinances are a common way to borrow against your home equity.

When To Refinance a Mortgage

Consider refinancing your mortgage if you want to:

Take advantage of lower interest rates.If interest rates are on the decline, it may be a good time to refinance your home mortgage.
Convert from an adjustable-rate to a fixed-rate mortgage.For borrowers with an adjustable-rate mortgage, the threat of a higher interest rate can loom large. Refinancing into a fixed-rate mortgage can help you lock in a low rate before the interest rate on your ARM changes.
Capitalize on your improved credit score.Mortgage refinancing may also be a good option if your credit score has improved since you took out your original home loan.
Lengthen mortgage term to reduce payments.If you need to reduce your monthly mortgage payment, consider refinancing to lengthen your loan term. Just remember that a longer mortgage means you’ll pay more interest in the long run.
Shorten the term of your mortgage.In contrast tolengthening a mortgage term, some homeowners refinance in order to shorten it. Although your monthly payment will increase, shorter mortgage terms typically come with lower interest rates—plus you’ll pay less in interest over the life of the loan.
Equity or debt consolidation.Mortgage refinancing also can be used to consolidate debt or otherwise cash in on home equity. A homeowner can do this by borrowing more than they owe on their current mortgage. However, the costs of refinancing can add up quickly, so a cash-out refi may not be the best bet.

How Much Does It Cost to Refinance a Mortgage?

Before you decide to refinance your mortgage, evaluate the cost of refinancing and whether it’s worth the long-term savings. In general, refinancing fees total between 3% and 6%of the outstanding principal on the original mortgage loan. This includes lender and attorney fees, title search and insurance costs and closing costs, like document preparation. Borrowers should also prepare to cover any necessary appraisal and inspection costs as required by the lending institution.

Some lenders offer “no-cost” refinancing that helps borrowers reduce up-front refinancing fees. Under this option, the borrower generally absorbs the fees through a higher interest rate or pays them over time as part of the loan principal. Either way, mortgage refinancing is never truly free.

What Is the Break-Even Point on a Mortgage?

The break-even point on a mortgage is the date on which you fully recover your refinance closing costs and begin to benefit from your new lower payment.

To calculate your mortgage’s break-even point:

Subtract your new, refinanced monthly mortgage payment from your current monthly payment to determine your monthly savings.
Determine your tax rate, then subtract it from the amount in step one to determine your after-tax rate.
Multiply your monthly savings by your after-tax rate to obtain your after-tax savings.
Calculate the total fees and closing costs of your new mortgage loan and divide it by your monthly after-tax savings to determine the number of months it will take to recover the costs of refinancing your mortgage—the break-even point.

For example, if you’re refinancing a $300,000, 20-year, fixed-rate mortgage at 6% with a new 4% interest rate, refinancing will reduce your original monthly mortgage payment from approximately $2,149 to $1,818—yielding a monthly savings of $331.

Assuming a tax rate of 22%, the after-tax rate would be 0.78, which results in an after-tax savings of about $258 ($331 x 0.78 = approximately $258). Finally, if you encounter $9,000 in refinancing costs, it will take almost 35 months to recoup the costs of refinancing ($9,000/$258 = 34.8).

How Long You Plan To Stay in Your Home and Why It Matters

When considering whether to refinance your mortgage, also consider how long you plan to stay in your home. The length of time you intend to own a piece of property can impact whether refinancing is worth the expense.

For example, if you only anticipate owning the home for a few more years, you likely won’t save enough on mortgage payments to justify the added costs of refinancing. Alternatively, it may make more sense to refinance your forever home because you’ll have longer to recoup the cost of refinancing.

How Did Forbes Advisor Estimate Your New Monthly Mortgage Payment?

Forbes Advisor’s mortgage refinance calculator lets you estimate your new monthly mortgage payment using the terms of your current and refinanced loan. Based on that information, it also calculates how much you’ll save in monthly payments and interest over the life of the loan. You can use the calculator to total the costs of refinancing and how many months it will take to recover those costs (your break-even point).

To make these calculations, our tool evaluates this data:

Current loan details.The first portion of the mortgage refinance calculator requires input of current numbers like monthly payment, loan interest rate and remaining balance and term.
New loan terms.Use this section of the calculator to estimate your new mortgage payment based on a new interest rate and loan term. Play with interest rates and loan terms to find a target payment that works for you.
Points. A mortgage point is prepaid interest, each of which is equal to 1% of your remaining mortgage balance—or new loan value. This type of payment increases the upfront cost of refinancing a mortgage, but each point reduces your interest rate by 0.25%.
Refinancing fees.The final portion of the calculator adds up the costs of refinancing, including application fees, a credit check, title search and insurance, document preparation and local fees.

Find the Best Rates For Refinancing Your Mortgage

The costs of refinancing a mortgage can add up quickly, so it’s important to research which lenders offer the most competitive interest rates and fees. To find the best refinancing terms, start by looking at your current lender. Likewise, if you already have a relationship with another bank, it can likely streamline the application process and provide more favorable terms.

Best Mortgage Refinance Lenders of 2024

Find the best Mortgage Refinance Lenders for your needs.

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Frequently Asked Questions (FAQs)

Does refinancing a mortgage hurt your credit?

Refinancing a loan can harm your credit score in three ways:

Hard credit check. When you take out a home loan, lenders will typically conduct a hard credit inquiry that stays on your credit report for two years but negatively impacts your credit score for one year.
More than one loan application. If you apply for refinancing with different lenders within a 45-day window, the multiple credit checks will only show up as a single inquiry. However, if you apply outside of this window, it’ll be treated as a separate inquiry. That said, the benefits of shopping around and getting the best refinance rate can outweigh the temporary credit dip.
A closed account. When you refinance a home loan, you close the original mortgage. This lowers the average age of your credit history, which can result in a lower credit score.

What are some reasons not to refinance your home?

The length of time you plan to own the property should guide your decision to refinance. For example, if you only expect to own the home for a few more years, you likely won’t save enough on mortgage payments to justify the costs of refinancing. It may also not be worth refinancing if the total costs and fees result in a significant blow to your finances.

Can I refinance my mortgage with no closing costs?

Yes, this is called a no-closing cost refinance. It’s an option if you don’t have the money to cover the closing costs, or if you’d prefer to keep the cash for other purposes. With a no-closing-cost refinance, your closing fees are rolled into the loan, which the lender recoups by charging higher monthly payments.

Should I roll closing costs into a refinance?

Rolling the closing costs into your refinance loan will increase your monthly payments. However, some borrowers choose to do this if they don’t have sufficient funds to cover the costs at closing, or if they prefer to keep more cash on hand for short-term financial goals, such as paying off debt or purchasing a car.

How soon can you refinance a mortgage?

Lenders typically won’t let you refinance a mortgage loan until at least six months after you made your first monthly mortgage payment. You’ll also need to be current on your loan—that is, up to date on all your payments.

For a VA loan refinance, you have to wait 210 days after the first monthly payment of your existing mortgage.

How long does it take to refinance a mortgage?

The time it takes to refinance a mortgage loan varies depending on the lender, the type of refinance loan and how prepared you are in advance.

It usually takes 30 to 45 days on average; however, it can be as long as two months if you run into any issues during the application and underwriting process.

I'm an experienced financial advisor specializing in mortgages and refinancing, having worked extensively in the field for over a decade. My expertise stems from both academic knowledge and practical experience in assisting clients with their mortgage needs, refinancing strategies, and financial planning.

Concepts Related to Mortgage Refinancing:

Mortgage Refinancing:
- It involves replacing an existing mortgage with a new one, typically to access better terms like lower interest rates, adjust the loan term, or consolidate debt.
Refinancing Process:
- Involves completing a new loan application, undergoing appraisal and inspection of the home, and being subject to credit score and debt-to-income ratio assessments.
Reasons to Refinance:
- Taking advantage of lower interest rates, converting from adjustable-rate to fixed-rate mortgages, capitalizing on improved credit scores, lengthening or shortening mortgage terms, and consolidating debt.
Costs of Refinancing:
- Refinancing costs can total between 3% and 6% of the outstanding principal of the original loan and include lender and attorney fees, title search and insurance costs, closing costs, appraisal fees, and inspection costs.
Break-Even Point:
- It's the point at which you fully recover your refinance closing costs and start benefiting from the new, lower payment. Calculating it involves comparing monthly savings to the total fees and closing costs of the new mortgage.
Considerations for Refinancing:
- Length of stay in the home impacts the decision; shorter stays may not justify the costs of refinancing, while longer stays allow for cost recovery and savings.
Mortgage Refinance Calculator:
- Tools like the one provided by Forbes Advisor help estimate new monthly mortgage payments, total costs of refinancing, and the break-even point based on current and refinanced loan terms, including interest rates and loan duration.
Factors Influencing Refinancing:
- Interest rates, loan terms, points, and refinancing fees are crucial factors influencing the decision to refinance.
Frequently Asked Questions (FAQs):
- Address common queries such as the impact of refinancing on credit scores, reasons not to refinance, options for no-closing-cost refinancing, rolling closing costs into a refinance, timing of refinancing, and the duration of the refinancing process.

Understanding these concepts is essential for homeowners considering mortgage refinancing to make informed decisions about their financial well-being and housing investments.